The battle against insurance fraud

This has been a significant challenge since the 2011 hack on US media agencies, which was allegedly carried out by the Chinese military. This exposed the fragile nature of the internet with questions about online safety coming under the spotlight. Emerging trends aside, traditional methods of fraudulent practices remain.

"It is well established that crime syndicates are prevalent in our country, particularly to hijacking and stolen vehicles. However, fraud is not limited to organised crime. We continue to find policyholders who behave opportunistically by inflating claims, submitting false claims, and who provide false information to get cover,” says Helen du Toit, Santam’s Head of Audit and Forensics.

A very small group of intermediaries has also fallen prey to a belief that fraudulent activity can go undetected such as stealing premiums, backdating client cover, and submitting false claims, can go undetected.

The most common fraudulent activities among short-term insurer supply chains are submitting false claims, issuing false invoices to insurers, and inflating the costs of repairs and/or using inferior parts.

The effect of these fraudulent practices is that insurers are placed under pressure to increase premiums, selectively manage their risk pool of clients which may lead to delays in processing claims as insurers implement policies and systems in their fight against fraud.

"Short-term insurance is a safety net for businesses and individuals who want to protect their hard-earned assets. Widespread fraud could threaten the industry’s ability to provide this. More than that, it oils the economic engine of the country. As businesses suffer losses, insurers typically step in to ensure that they are put back into operation as quickly as possible. Widespread fraud challenges the industry’s ability to keep companies operating,” adds du Toit.

The latest crime statistics issued last month by the Minister of Safety and Security, Nathi Mthethwa, show that commercial crime increased by 0.6%.

In the same period, Santam reported 101 cases of commercial crime amounting to R14.7 million, to the South African Police Services this is a 0.5% increase in reported vehicle theft and an 11% increase in business robbery claims.

"Whether fraud is opportunistic, where an individual decides to capitalise on a perceived opportunity to make personal gains, or whether it is well-planned, it has very serious consequences. For individuals, the personal repercussions are severe and could result in prison. For the national economy, the cost is enormous in terms of foreign confidence and the consequent unwillingness of investors to make much-needed investments in South Africa,” says du Toit.

Recent reports by Price Waterhouse Coopers and KPMG show that this is the biggest red flag preventing investors from investing in our economy, short on the heels of fears of over-regulation.

Insurers are increasingly developing policies, including a zero-tolerance approach to fraud committed either by policyholders, intermediaries, suppliers, or staff.

"On the one hand, we are developing systems to ensure clients receive the benefits of technology-driven administration, but we also want to ensure strong and reliable vetting of suppliers and claims processing. Also, the industry is committed to developing good working relationships with the SAPS and other regulatory stakeholders,” adds du Toit.

"Ultimately, the real deterrent to fraud is to ensure policyholders take their safety seriously and pay attention to what they do and why they do so,” concludes du Toit.

Santam is committed to working with policyholders to ensure that they are more aware of their own safety, help manage their risks and so manage their premiums. Limiting opportunities available to potential fraudsters and the impact of fraud on their insurer and themselves, is the ultimate aim.